Annual Report2020Intuitive Surgical, Inc. www.intuitive.com

Intuitive Annual Report 2020

Dear Owner,

The past year has been complex, starting with the COVID-19 pandemic and extending to societal and environmental stresses and disruptions. These challenges impacted countries, industries, companies, communities, and individuals differently. Taken together, they have pressured the holistic functioning of organizations and truly stress tested values, governance, personnel practices, and sustainability. Intuitive is diligent in these practices, and we employ continuous improvement. Our character as individuals and as an organization showed. Our north star – delivering clinical benefit and economic value to our customers and their patients – served us well.

Our COVID responseIn surgery, COVID presented serious obstacles to our customers, who needed to treat COVID and non-COVID patients concurrently. During regional virus surges, hospitals faced constraints in staff and intensive care unit (ICU) capacity, deferring surgical procedures that could wait. In addition, community shelter-in-place orders and individual concern over safety had patients postponing routine health screenings and diagnostic procedures. Faced with significant disruption of our customers, in our communities, and within our supply chains, our corporate values and one team culture enabled us to quickly adapt, adjust our priorities, and deliver accordingly. Intuitive formed our COVID incident management team at the outset of 2020; members included medical, manufacturing operations, commercial, customer training, facilities, human resources, communications, and policy leaders. Their first actions were to track the science of the pandemic, to install measures to protect our staff and our customers, and to help the communities in which we live and work. Throughout the year, we worked closely with our customers, adapting to their evolving needs. We implemented a global customer financial relief program in Q2 2020 and redesigned and localized our customer training activities to reduce the need to travel for training. We loaned or moved da Vinci systems for hospitals as COVID forced them to remap patient pathways. Customers have responded well to these programs, as evidenced in our direct interactions with them and through our Net Promoter Score (NPS) – a standardized measure of customer sentiment assessed via JD Power benchmark surveys – which landed us in the excellence tier of measured companies for the second consecutive year.

Early in the pandemic, our operations, medical, and facilities leaders redesigned our production facilities and methods to adopt best practices for employee safety, including screening, distancing, cleaning, and education practices for our staff. Our HR teams updated leave and bonus policies to support employees faced with unforeseen pandemic-related personal challenges. Our IT teams provided work-from-anywhere assistance to our staff, including equipment, broadband, and ergonomic support. We also worked with our supply chain partners to support their needs and practices. Due to these efforts, we saw outstanding supply performance in our mature product lines in the year.

Our company also honored its relationships with our communities. In partnership with the Intuitive Foundation, our teams manufactured and donated more than one million pieces of personal protective equipment in support of health care facilities globally. Our engineers worked with outside firms to update ventilator designs to make them easier to produce. Our foundation and employees donated time and financial resources to dozens of community service organizations in the year.

Intuitive Annual Report 2020

I encourage you to read more about our values and our comprehensive response to the challenges in our 2020 Corporate Sustainability Report. Customer valueReflecting on the year, our customers value our products and appreciate our broad support. As COVID constraints on hospitals ease, hospitals return to the use of our products. For the year, approximately 1.25 million procedures were performed, 1% growth compared to 2019. On a quarterly basis, year-over-year, procedures grew 10% in Q1 2020, decreased 19% in Q2 2020, grew 7% in Q3 2020, and grew 6% in Q4 2020. Throughout the year, customers continued to invest in new Intuitive systems, in anticipation of recovery after the pandemic. Our clinical installed base of da Vinci systems grew 7% year-over-year. Trends that stood out in capital placements included the increased acceptance of leasing and alternative capital placement models, as well as trade-ins of older da Vinci systems for our fourth-generation products – da Vinci X and Xi. Like last year, we continued to see committed customers become more so, with the growth of da Vinci systems in hospitals and integrated delivery networks (IDNs) continuing despite the pandemic, as shown in the chart below.

Global Growth in IDNs with 7+ da Vinci Systems

Our ecosystem differentiates usWe work tirelessly to advance the elements of our ecosystem in support of our customers’ quadruple aim goals – better outcomes, better patient experience, better care team experience, and lower total cost to treat. Delivering on these goals requires a well-designed, deep and broad ecosystem of products and services, backed by data and analytics. Enabling customers to achieve great outcomes requires a delicate balance of people, processes, and technology: the right robots, instruments, imaging, accessories, training methods and technologies, OR and field support, and evidence to support adoption.

Source: Intuitive 2020 earnings estimate

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Intuitive Annual Report 2020

In 2020, our design, training, digital, and operations teams remained productive while adapting to new working methods. Our teams brought numerous innovations to market. In instruments and accessories, our team continued the global rollout of our surgical staplers, particularly important in general and bariatric surgery. Our Intuitive surgical energy portfolio grew in 2020, with our E-100 generator, our vessel sealers, and our SynchroSeal™ gaining customer acceptance. Given the desire by our customers to use our systems in lower acuity, more price-sensitive procedures, we launched our Extended Use Instruments program, the result of careful design and manufacturing advances over time.

Our imaging teams made strong progress in integrating the team from our long-time partner Schölly Fiberoptic and completing the launch of our fifth-generation endoscope, Endoscope Plus™, the highest performing RAS stereo endoscope in our history. Our Iris augmented reality program proceeded in its first phase evaluations, with first publications indicating its potential to inform treatment decisions that could improve outcomes by enabling surgeons to plan and discuss the surgical approach with patients, prior to the start of surgery.

Our customer training program was a highlight this year. We pivoted from centralized training centers to regional and digital access training support for customers who could not travel. In fact, use of SimNow virtual reality training systems doubled in 2020, with surgeons logging more than 34,000 hours in more than 431,000 tasks. Overall, our global team of employees displayed remarkable agility, creativity, and ownership during a challenging year. We are fortunate to count them as our colleagues.

Finances in the yearGiven the long-term opportunity for technology-enabled improvements to the quadruple aim in interventions and surgery, we invested in our staff, our customers’ needs, and our long-term strategic opportunities. Flat procedure growth in the year, along with a year- over-year decline in system placements brought revenue down 3% from 2019. We were disciplined in our spending, with some natural reductions due to decreased travel and commissions. This decrease helped moderate our operating expenses, while we continued to invest in innovation. Overall, non-GAAP net income fell 20% from 2019 levels as the result of decreased revenue and a sustained investment to pursue our long-term opportunities. We ended the year with $6.9 billion in cash and investments and no debt.

A deep and broad RAS offering is essential; it’s what distinguishes us. Information and analytics are key enablers at each step.

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Building the ecosystem takes expertise, time, and resources

Intuitive Annual Report 2020

Our opportunity going forwardIntuitive has created an effective ecosystem of products and services using design, robotics, computing, imaging, human factors and, more recently, machine learning to advance the quadruple aim. I believe we are in the early stages of a decades-long opportunity to improve healthcare using these techniques. We estimate that with our products in the market today, with our current global regulatory clearances, the opportunity for targeted procedures and geographies is roughly 6 million procedures per year. This compares to the roughly 20 million soft tissue surgical procedures per year in these markets overall. With continued innovation, new architectures, and scale, I believe many of these 20 million procedures will be performed using advanced technologies like ours in the future. As a result, we continue to invest in highly capable, mission-oriented staff, in deepening our ability to serve health systems interested in these techniques, and in developing and acquiring technologies and teams that can truly make a difference.

Our 2021 FocusFor 2021, we are focused on the following business objectives. First, we will continue to be agile and creative in supporting our customers globally as they navigate and recover from the pandemic. Second, we will continue to deepen our regional capabilities outside of the United States. Third, we will advance our product launches including our advanced instruments; our single port platform, da Vinci SP™; our flexible robotics platform, Ion™; and our informatics programs. Finally, we will continue to expand clinical, economic, and hospital-by-hospital validation in key procedures and countries.

Given the significant future opportunity for Intuitive, we will pursue the following investment philosophy. Our top priority is investment in organic opportunities to improve outcomes, patient experiences, care team experiences, and lower the total cost to treat per patient episode, leveraging all aspects of our technology-enabled ecosystems. Our second priority is to invest in operational and scale efficiencies that drive a virtuous cycle with our customers – better product quality, lower product costs, and increased scale, allowing us to share these cost savings with our customers. Our third priority is to pursue partnerships and acquisitions that can accelerate our drive toward the quadruple aim. Lastly, we return capital to shareholders with a focus on long-term value in these distributions.

Closing thoughtsIntuitive is well-positioned to chart the path for use of advanced technologies in acute interventions. We are staffed by an outstanding and diverse team that is committed to helping our customers reach their quadruple aim goals. We routinely challenge ourselves to test and innovate in technologies, in methods, and in business. Many of you have been investors in our company for years, and some of you are recipients of da Vinci surgery. Thank you for your continued support in this journey to improve surgery and acute intervention. I assure you that we are focused on delivering products and services that truly make a difference.

Gary Guthart, Ph.D.Chief Executive Officer

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